Brazil Illustrating BRICs' House of Cards?

A couple of years ago, it would have been a near laughable prediction – but the four countries comprising the vaunted bloc of emerging economies known as the BRIC’s (Brazil, Russia, India, China) continue to move in the wrong direction as the new global downturn shows increasing signs of taking hold. And Brazil has the dubious distinction of being the most disappointing of the bunch, per statistics released late this week.

Brazil’s Instituto Brasileiro de Geografia e Estatística unveiled third-quarter statistics that show growth tracking at just about half of its forecast expectations. IBGE noted the following on its website:
Compared to the second quarter of 2012, the GDP (Gross Domestic Product) of the third quarter grew (0.6%) in the seasonally adjusted series.  The greatest highlight was agriculture and livestock farming, which grew 2.5%, followed by the industry (1.1%). Services had no change. In contrast with the third quarter of 2011, the GDP grew 0.9% and, among the economic activities, agriculture and livestock farming (3.6%) and services (1.4%) stood out.  The industry fell 0.9%. In the accumulated in the four quarters ended in September 2012, the growth was of 0.9% in relation to the first four immediately previous quarters, whereas in the accumulated of the first three quarters 2012, the GDP grew 0.7% in relation to the same period in 2011. The GDP in current values reached R$ 1,098.3 billion. 

Notably absent was talk of its natural resources activities, which were expected to provide a boon for the key Latin region economy. The again disappointing performance is starting to reignite concerns raised shortly before the election of Brazilian President Dilma Rousseff. Rousseff, before her more mainstream political career, was known as a pro-labor leftist, leading market-watchers to wonder publicly if she was the right person to guide a period of hot business/economic growth for a nation known to often shoot itself in the foot with poor, inflation-boosting policies. Granted, Rousseff’s more activist roots from decades ago could be a red herring for her detractors, as the European Union massive debt crisis is having an impact on the economic prospects of nearly ever developed economic superpower and very well could have a lot more to do with the deteriorating strength.

-Brian Shappell, CBA, NACM staff writer

Key Indicators Expected to Reverse Negative Trend in November CMI

The latest iteration of the Credit Managers’ Index showed a return to form in some key factors, and jumped almost a full point from where it languished in October. November’s 55.2 reading is still shy of the high points reached back in February and March (55.8 and 56.2, respectively), but is back to the levels seen in August and September. When the reading from October fell to 54.4, there was a sense that it may have been an anomaly, and not as dangerous as it would appear. Now that assessment looks more accurate.

The most important jump was in sales, which climbed from 57.4 to 60.4. It is always encouraging to see the data cresting past 60, and this marks the best sales month since August when the reading was at 62. However, the best improvement in the favorable factors was in dollar collections, as it improved from 54.6 to 61.3. That is an impressive showing by any measure, and suggests that companies are seeing enough improvement in revenues to start catching up on their debt.

There was slightly more volatility in the unfavorable categories, causing a decline in the overall unfavorable index. Every indicator except dollar amount beyond terms, which rose from 48 to 49.9, slipped. Rejections of credit applications fell from 52 to 51.1—not a major reduction, but a signal that there are still applicants coming with less than acceptable ratings. The decline in accounts placed for collection from 53 to 51.2 was a little steeper, but is consistent with the pace set for most of the year and suggests that many companies are still trying to get back into financial shape.

-NACM staff

(Note: For more on the November CMI, check out the weekly NACM eNews release, available late Thursday afternoon, and, for full statistics and analysis, visit on Friday).

EU Makes Move Against Ratings Agencies

The European Union, continuing to struggle with a debt crisis among many of its members, had a busy if not surprising week of action. In a move that smacked of killing-the-messenger, the EU put significant restrictions on how, what and when the three biggest ratings agencies in the world could publicly assess the sovereign credit ratings of its member nations.

The EU's head-turner came in the official form of a reprimand against the “Big Three” ratings agencies (Moody’s Investors Service, Standard & Poor’s and Fitch Ratings), all of which are based in the United States. The EU is fast-tracking legislation that restricts the timetable in which any of them could release news of sovereign credit ratings of any EU member. The regulations would also empower investors with the right to take legal action against the agencies if financial losses could be tied back to vague measures of “gross negligence” or “malpractice” on the agencies’ part. Some call the move an attempt at improved transparency and competence, while others liken it to censorship.

The three credit ratings agencies were criticized heavily for their performance in ratings of both companies and countries during the run-up to the worst global recession in more than half a century. In addition, European leaders continued criticism as the agencies routinely lowered ratings of and put on warning high-debt nations including all of the PIIGS (Portugal, Ireland, Italy, Greece, and Spain)—all of which since proved to have deep-rooted fiscal issues, mind you—and, more recently, former economic powerhouse France, which saw its prestigious “Aaa” rating downgraded a step by both S&P and Moody’s in 2012. EU officials allege the timing and content of such downgrades unnecessarily exacerbated problems and have made recovery significantly more difficult.

- Brian Shappell, CBA, NACM staff writer

Municipal Bankruptcy Roundup: San Bernardino, Harrisburg, Detroit

In San Bernardino, CA, the City Council has voted on budget measure that would include stopping payments to its pension program at least temporarily. Officials will submit the proposal to a judge who tasked with reviewing its Chapter 9 bankruptcy filing, as well as its eligibility, before a deadline at the end of this week. Entitlements, such as worker pension funding, are the driving force behind the California community’s ongoing debt crisis. It is estimated the city has 143.3 million in unfunded pension obligations at present. Employee and retiree entitlements have become a financial scourge affecting many cities throughout the nation, and it's only expected to escalate as a result of a rapidly aging workforce.

Meanwhile, Harrisburg, PA, talk of a potential municipal bankruptcy could have legs again and may just force its creditors back to the negotiating table. Though the city has been denied Chapter 9 eligibility multiple times because of a quickly-passed state law aimed at temporarily blocking third-level cities in the state from filing for, the entire dynamic could change as said law is just days from expiring. As such, parties involved with an ill-fated trash incinerator project that has become the complete opposite of the financial windfall it was expected to be, could see a city with a bit more of power in the negotiating process without a massive obstacle in its way.

Talk of potential municipal bankruptcy has begun anew again in Detroit, as the city failed to meet certain required benchmarks set by the city to trigger some $10 million in state funding. City officials have acknowledge that it could run out of cash before year’s-end and struggle mightily to meet commitments without the funding. As such, city Mayor David Bing has noted that unpaid furlough days for public employees are likely to begin soon after the 2012 holiday season. The city has been regularly mentioned among municipalities struggling the most with insolvency for several years.

-Brian Shappell, CBA, NACM staff writer

Black Friday Retail Numbers: Good, with Caveats

The first blush was generally positive, but there are lots of caveats. The sales boost that retailers expected over the Thanksgiving weekend took place, but it was not as robust as it was last year. There was some evidence that it began to fizzle before the weekend even ended.

Right now, there are mixed reviews when it comes to the front-loading of the weekend. It appears that people did as they always do—they gobbled up the bargains and the sales. However, this time the powers that be launched these sales early; so people took advantage early. The next three weeks usually represents a lull before the last-minute shoppers, generally the men, give a late boost to the season.

The overall sense is that Black Friday was about what was expected: no sense of a big breakthrough year but no sense of a 2009‐like withdrawal either. People are spending about what they spent last year, and that is neither good nor bad news. The hope that retail would surge enough to push the economy all by itself seems a faint hope at this point, but at least there is no sign of a retreat either. That passes for good news these days.

-Armada Corporate Intelligence  

France Loses Top Rating with Another Agency

A strong illustration of just how bad the European debt crisis is getting, France has lost is top, “Aaa” credit rating with Moody’s Investors Services, moving down one notch and maintaining a dubious “negative” outlook.

France, just over a year ago looked at as a potential debt problem-solver along with Germany, has continued to move backward. But Tuesday's downgrade marks the second in 2012 -- Standard & Poor's made a similar move. With it exposed to various risk thanks to long-time debtor nations to the south, primarily Greece, Spain and Italy, the luster has come off of the European Union’s second largest economy.

Euler Hermes Chief Economist Ludovic Subran said it’s going to be a tough road for most of the EU, especially France, back to a place of strong growth, and that is unlikely to occur anytime soon.

“There will be almost no growth in Europe until 2014 [because of] ineffective economic policies,” Subran noted. He added that Europe is at a crossroads and nothing illustrates the precarious position more than France’s growth stoppage. That would only be topped if Germany’s economic growth and manufacturing activity dropped well below already disappointing recent numbers.

Moody’s justified the downgrade on the following rationales:

  1. France's long-term economic growth outlook is negatively affected by multiple structural challenges, including sustained loss of competitiveness and the long-standing rigidities of its labor, goods and service markets.

  2. France's fiscal outlook is uncertain as a result of its deteriorating economic prospects.

  3. The predictability of resilience to future euro area shocks is diminishing in view of the rising risks to economic growth, fiscal performance and cost of funding. France's exposure to peripheral Europe through its trade linkages and its banking system is disproportionately large, and its contingent obligations to support other euro area members have been increasing.

On the positive side, it is worth noting that France remains in a far less negative position then the previously mentioned neighbors, save Germany, and the predicted rate of business bankruptcy there is tracking below the global average. Euler Hermes statistics indicate France's business insolvency rate changes between 2011 and 2012 is tracking to finish at 3%; the Global Insolvency Index (average) for the same period is 4%. Moreover, Euler Hermes' forecast predicts a 2% between this year and 2013 for France, with a global average likely to post at 3%.

-Brian Shappell, CBA, NACM staff writer

FCIB, Dept. of Commerce Extend Partnership on Trade Finance Guide

As many of you know, FCIB has worked in partnership with the Department of Commerce on many initiatives designed to promote and advance international trade, including the development of the International Credit and Risk Management (ICRM) online course and the International Trade Finance Guide.

Earlier this month at the FCIB Global Conference held in Philadelphia, Carlos Montoulieu, Acting Deputy Assistant Secretary for Services Industries in the International Trade Administration of the U.S. Department of Commerce (DOC), officially released  the 3rd edition of the Trade Finance Guide and announced that FCIB will continue to promote the Guide, including producing print copies of the Guide through the Department’s partnership program.

In 2007, FCIB assisted the Commerce Department in the development of this concise guide, designed to help SMEs quickly learn how to choose the most effective and efficient credit mechanism when selling cross border. Subsequently, in recognition of its contribution to the Guide’s development and promotion, FCIB was awarded a Certificate of Appreciation from the Under Secretary for International Trade.  Since 2007, more than 300,000 copies have been distributed to small and medium size businesses, helping the Guide become a popular export assistance resource.

FCIB is proud to continue to promote this new Guide and FCIB is honored to support the U.S. Department of Commerce’s International Trade Administration.

We are confident that this initiative will generate many new business leads for FCIB and NACM, allowing both organizations to advance their missions to assist businesses strengthen their commercial credit operations.

-Robin Schauseil, CAE, NACM President

LaRocca Joins Short list of FCIB Service Award Winners

A touch of humility goes a long way, as does a little self-deprecating humor. John LaRocca, CICP, of Hitachi Data Systems Corp., demonstrates plenty of both. He also demonstrates the kind of leadership and team-player-mentality that made him a perfect fit as the fourth ever recipient of FCIB’s Service Development and Growth Award.

FCIB bestowed the well-earned distinction on a surprised LaRocca at FCIB’s 23rd Annual Global Conference in Philadelphia last week.  LaRocca, when asked about the achievement, quipped, “They must have run out of people to give it to.” That's hardly the case.

LaRocca, who is based in California but works closely with employees at shared services centers like one in Poland as well, has served FCIB and the community of international credit professionals in a number of ways, not the least of which include serving as an expert panelist at repeated industry events like the latest Global Conference, recruiting and involving the next generation of credit professionals to get involved with FCIB. He also was cited for helping FCIB greatly on its website redesign.  Still, LaRocca typically thought it best to deflect and share the attention.

“It’s recognizing participation and involvement, but it’s really recognizing efforts of the Hitachi Data Systems team,” he said a few days after receiving the award. “While I’m being singled out, there are so many people who have contributed.”

Since its inception in 2011, the award has been presented twice annually. It is designed recognize the valuable contributions volunteers are making to further grow and develop FCIB's member services and to encourage more people to serve. The first winner of the award – Mannes Westhuis, CICP, of Bierens Collection Attorneys – further described it as something that represents a win-win situation: one where the credit professional is “getting in touch with leads, customers while being socially and professionally responsible.”

LaRocca said, after years of involvement in FCIB, he continues to see it as an organization that offers real and “terrific” value for those who get involved:

“It really enables people to come together. It is good to see how others are doing things and take it back to their companies. There’s a terrific value in that.”

Other previous winners of the Service award are Texas-based Luis Noriega, ICCE, of JPMorgan Chase Bank, and Regine Hilgers, CICP, EMEA credit controller based in Germany for Ashland Specialty Ingredients.

-Brian Shappell, CBA, NACM staff writer

Official on U.S. Trade: TPP A Priority, FTAs Unlikely

Carlos Montoulieu, of the U.S. Department of Commerce, confirmed in an interview with NACM that the Trans-Pacific Partnership (TPP) was the overwhelming priority for U.S. officials regarding trade and that there’s “quite a bit of momentum” therein. That also means potential for new, bilateral Free Trade Agreements (FTAs) is scant.

Montoulieu also confirmed that a rumored Trans-Atlantic Agreement between the United States and the European Union would likely get a boost after recommendations—expected before year’s end—are officially released by the High Level Working Group reporting to President Barack Obama. It’s all part of the administration’s continued goal of doubling exports by the end of a five-year period that ends in December 2014, one that was on track after two years but suffered setbacks during a highly partisan election year in 2012.

The purpose of the TPP is to break down trade barriers, especially in the eastern portion of the Asia-Pacific region, where manufacturing prowess and raw materials holdings are becoming more evident. It was estimated at FCIB's Global Conference this week in Philadelphia that nearly half of the $22 trillion in global economic growth between now and 2020 will be in the Asia-Pac region.

With the focus square on multi-lateral deals, the prospects for new, bilateral deals continue to fade. In fact, acting deputy assistant secretary for services industries for Commerce’s International Trade Administration said he was “not aware of any that are high on the list of priorities.”

“Our focus is on the TPP—there has been a lot of momentum there,” Montoulieu told NACM. “It’s actually sometimes easier to do a multi-lateral deal because of the mass behind it. Two nations have to be very dedicated.”

Montoulieu sidestepped questions as to whether bilateral FTA’s were essentially taken off the board because of the difficult and lengthy battle to get the last three—Colombia, Panama and South Korea—through to enactment, as has been widely rumored. The assertion is that a hangover effect is in play.

- Brian Shappell, CBA, NACM staff writer

Debt Crisis in Europe Officially a 'Recession'; What Now?

You can take your pick of things to worry about regarding the European Union. There is the fact that the euro zone has officially entered another recession, as there have now been two consecutive quarters of negative growth. There is also the fact that France is now sliding into the same trough that has engulfed the Spanish and Italians. The French finance minister accuses the world of “France bashing” but the numbers are what concerns people. The Italians are suggesting that public spending has to be slashed at the same time that others assert that Italy can’t handle any more austerity. The German economy has stalled somewhat, the Netherlands is in recession and Finland is leading a semi-movement of nations fed up with paying.

The fate of the euro zone remains unclear though there seems no desire on the part of the Germans to see it go -- that will be a key factor. The most important issue at this stage is growth, and nobody sees a way to stimulate it without loads of outside help. The desire to bring the U.S. to the table has been miniscule up to this point but that is changing—fast.

-Armada Corporate Intelligence

Expanded Uniform Commercial Code Service Officially Launches

Several years in the making, the UCC Filing Service went fully live online this week, joining the Mechanic’s Lien and Bond Services under NACM's Secured Transaction Services umbrella.  The service provides the means to mitigate the risk of debtor nonpayment for businesses that sell or finance various types of personal property under UCC’s Article 9, as well as those that lend the labor, materials and other services under state law. The purpose, at its simplest level, is to help creditors become a secured party as an investor, thus putting them in the best possible position to get paid. Remember: secured creditors get paid out 100% (if money is available) before unsecured creditors get one cent, per bankruptcy law. This is increasingly important in areas such as construction as the domestic economic recovery, already sputtering, is threatened by ongoing and new threats, such as gridlock in the U.S. Congress.

Powelson noted that getting involved with UCC filings is not difficult when using a service providing the know-how. He recalled a colleague in Texas who, after years of “me badgering him to protect himself,” made a UCC filing about six month before a major customer filed a massive, $40 million bankruptcy. The colleague’s business was paid nearly 100% of what it was owed, unlike unsecured creditors who received pennies on the dollar.

“That filing cost him $82 and took about one hour to complete,” Powelson said. “With getting paid what he was owed, he joked that the program already paid for itself ‘for about the next 2,200 years.’ I think there are a ton of credit managers who just aren’t sure about the process and perceive it as very cumbersome. The process can be somewhat easy, actually. But sometimes you’ve got to get crushed or really kicked in the teeth and have your boss say, ‘we can’t do this anymore. What could we have done to protect ourselves?’ before you make the move.”

- Brian Shappell, CBA, NACM staff writer

Payment in Middle East Still a Question Mark

For the second time in less than a year at an FCIB multi-day event, the topic of opportunity in the Middle East again was a hot one. And the jury once again noted there is a high level of opportunity to sell products and services that is only going to escalate in the coming years. However, it's not always so easy to get paid on deals that have been agreed upon.

FCIB 23rd Annual Global Conference Speaker Adolf Renaud, ICCE, of Tekelec Global, told attendees that he travels to the Middle East about every six or so weeks because of the amount of money that can be made in the region. Part of the reasoning is the cultural need there to slowly build the relationship and trust, not to mention that there regularly are obstacles to getting paid in any kind of timely fashion.

"If you think you can pick up the phone or send and email to get a payment, it's not going to work," Renaud said. "You have to be over there and spend time in the region. You also need to do exactly what they want...make sure you are specific and meticulous on things like invoices. It's not that they don't want to pay; it has to do with bureaucracy that has been in existence there for 50 years."

Panelist Charles Hallab, of Baker & McKenzie LLP, noted that even with an eye for these factors, payments have been a regular problem in the Middle East. One major mistake is making the assumption, albeit a reasonable one, that a high ranking official might be the most reliable to deal with in the region.

"Nonpayment, late payment, partial payment takes up a log of our time," he noted. "People come to us surprised that they're dealing with a major governmental agency or a prince and can't understand why payment is not forthcoming. Sometimes those are the worst counterparties to deal with in the Middle East. Track record is much more important than title."

-Brian Shappell, CBA, NACM staff writer

Commercial Credit Tightening on the Horizon?

FCIB's 23rd Annual Global Conference speaker John Ahearn, of Citibank, warned credit managers Tuesday that the problem with European banking debt is not just an economic issue there or even a trade headache for the United States and other exporting powerhouses; it is also a credit liquidity issue going forward on a dangerous worldwide level.

Ahearn reminded Global attendees just how much of a player European banks are in providing liquidity and capital. For example, Spanish banks are keenly important to funding a lot of businesses operating out of South America, including several emerging markets, and Germany is hooked into many parts of Central America as a credit source of massive prominence.  

Moreover, many banks involved in providing such credit may have to make tough decisions of what areas and markets they want to focus on in the coming years. What that means is the potential for less liquidity or less favorable terms. It also means that businesses of various sizes that are overly dependent on one multi-national bank could find themselves scrambling to replace them should they exit that company's market.

"Banks are going to have to start making strategic decisions: What markets do I want to be in? We believe there are going to be retractions, and this is going to be global," Ahearn said. "Banks are going to pick products they're good at and exit the rest." In essence: make sure you are using multiple banks so that if the bank you do most of your business with gets out of that business, you have other options.

-Brian Shappell, CBA, NACM staff writer

Tough Road in Europe Creating New Bankruptcy Boom

The ongoing debt crisis in Europe continues to spread to the point where even the powerful German manufacturing sector is starting to take a hit. FCIB Global Conference Speaker Ludovic Subran, of Euler Hermes, noted this is likely to push bankruptcies much higher in a number of economies there.

Subran noted that projections show low growth, if any, in most European Union member economies over the next two years. As such, it leads to the question: How long can they survive these very low levels of demand? The answer for many companies simply is not very long.

"The rate of destruction of private companies is advancing," the economist told FCIB members and guests. "You have fewer and fewer companies. This includes very important links of the value chain that are disappearing...because some huge companies are going bust." He added there are many companies that rely overwhelmingly on some of these larger companies and intimated that a domino effect looms as a real and present danger.

Subran said that, by year's end, the projected increases in bankruptcies and/or other forms of business insolvencies is skyrocketing in places like Portugal (up 48% between 2011 and end of 2012), Greece and Spain (both 30%) as well as the Netherlands (25%). By contrast the average, per the Global Insolvency Index, is a 4% increase during the same period. Moreover, Subran said another 22% increase is expected in Spain between this year and 2013, with an 11% jump predicted for Italy and 10% for Greece. Granted, there are far fewer nations -- both in Europe and worldwide -- expected to outpace Euler Hermes' projected average insolvency pace through 2013 (3% increase among companies) than during the previous one-year period.

-Brian Shappell, CBA, NACM staff writer

Note: Look for more coverage this week here, through the FCIB Twitter feed (handle: FCIB_Global) and in NACM's eNews (available late Thursday afternoon).

FCIB Global Conference Kicks Off in Philadelphia

FCIB's 23rd Annual Global Conference has kicked off in Philadelphia with the topic of U.S.-based trade high on the list of priority topics. To wit, U.S. Chamber of Commerce Vice President John Murphy discussed recent trade-related victories emanating from the U.S. federal government and what needs to be at the top of the agenda going forward.

Of its big three concerns for 2011 and 2012, two have been accomplished: Congress approved the three Free Trade Agreements and, despite some argument involving the role of and/or "size of government" objections, the charter of the Export-Import Bank of the United States was reauthorized. Murphy noted both were of massive importance, as is a yet-to-be worked out legislative agreement in the U.S. Congress involving restrictions on the books regarding Russia. Russia continues to become a more open economy with its newfound accession into the World Trade Organization; however, long-standing laws on the books technically would allow Russia to discriminate against U.S. businesses until they are removed.

"The U.S. has to pass legislation so American companies can get those benefits; other nations are already benefiting from Russian's ascension," Murphy said. He added that Congress could begin tackling this issue as early as Friday, during the lame-duck session. Murphy also laid out a five-point agenda of what the Obama Administration should, in the eyes of the chamber, focus on in 2013 and beyond to continue helping U.S. businesses take advantage of growth opportunities through exporting:

  1. Trade Promotion Authority – President Barack Obama needs to request this power, which includes the ability to negotiate Free Trade Agreements (FTAs), which every president since Franklin Roosevelt has had. The Chamber expects the president will ask for it in the second term.

  2. Trans-Pacific Partnership – There needs to be more interest in the “Pivot to Asia” area. Nearly half of the $22 trillion in global economic growth between now and 2020 will be in the Asia-Pac region. Of late, the U.S. share of Asian imports actually fell 43% in the last decade. Lack of FTAs are part of the problem, especially in East Asia.

  3. Trans-Atlantic Trade and Investment Pact possibility – U.S-EU commerce leads the world with $1.5 trillion in goods, services and income receipts. The High-Level Working Group sees a potential agreement, reportedly, and could recommend it in a report expected to be out before year's end. Murphy noted the barriers are low already "but volume is so large that even removing low barriers would lead to a economic impact that would be significant.”

  4. New FTAs – Brazil, Egypt, India and Indonesia all represent places of growing opportunity and are places the U.S. should target. There are significant barriers in all of these, however, which doesn't even touch on the point that getting the last three FTAs through (South Korea, Panama, Colombia) and into enactment were near-decade-long tasks.

  5. Multilateral Trade Deals – There's new hope an International Services Agreement could be negotiated. The prospects are actually excellent that negotiations will start next year. In addition, a Trade Facilitation Agreement would speak to reforming international customers' procedures. "Time is money. Where clearance can take days, that imposes a real cost that is often higher than the actual tariffs," said Murphy. A third piece would be to expand product coverage of the Informational Technology Agreement; when the info tech agreement was last negotiated, smartphones/tablets weren't in existence. An update therein is badly needed.

-Brian Shappell, CBA, NACM staff writer.

Visa, MasterCard Settlement Receives Preliminary Approval

Despite the noisy objections of hundreds of retailers, U.S. District Judge John Gleeson granted preliminary approval this afternoon to a proposed settlement between merchants and Visa and MasterCard over interchange fees.

Final approval of the settlement still remains a long way off. The $7.2 billion deal includes a $6 billion payment to merchants and temporary reductions in interchange rates. It also allows merchants the right to pass their processing costs on to their customers via surcharge.

In court, Gleeson referred to the plaintiffs' objections as "overstated."

Stay tuned to NACM's blog and eNews for future updates.

- Jacob Barron, CICP, NACM staff writer

Merchants Make Case against Interchange Settlement

U.S. District Judge John Gleeson might rule today on giving preliminary approval to the proposed antitrust settlement in the case against Visa and MasterCard over interchange, or "swipe," fees.

Opponents to the settlement have rigorously made their case to Gleeson, and to the public, arguing that in its current state, the agreement cements Visa and MasterCard's ability to increase interchange fees at will while denying merchants the right to propose meaningful reforms.

In addition to 10 of the 19 named plaintiffs in the case opposing the settlement, 1,200 small businesses and brands have also joined the fight and urged Gleeson to deny preliminary approval. "The vocal opposition from such a substantial and diverse portion of the merchant community demonstrates just how ineffective and unacceptable this proposed settlement is," said Dave Carpenter, president and CEO of the J.D. Carpenter Companies and chairman of the National Association of Convenience Stores (NACS), which has opposed the settlement from the start. "The proposed settlement is simply a bad deal that further entrenches the anticompetitive practices of the Visa and MasterCard duopoly and denies merchants of their legal right to fight for real changes in court."

Interchange fees are currently set unilaterally by card processors like Visa and MasterCard. While the proposed settlement provides for a $6 billion payment to retailers and allows merchants to pass the fees charged on them to their customers, it does not provide for transparency in the way that the fees themselves are set. Furthermore, the settlement precludes attempts by merchants to bring similar cases at any point in the future.

Preliminary approval of the settlement would mean that supportive plaintiffs could begin to sign up merchants to participate in the deal's benefits. Gleeson has said in court that the threshold for preliminary approval is "meaningfully lower" than it will be for final approval, which could take place months down the road.

- Jacob Barron, CICP, NACM staff writer

September Exports Recover from August Slip

The trade deficit narrowed as exports jumped in September 2012, according to the U.S. Department of Commerce.

Following August, in which exports dropped to the lowest level in six months, September's figures were much more welcome, as exports rose by 3.1% to $187 billion and imports increased only 1.5%, to $228.5 billion. The trade deficit shrunk from $43.8 billion in August, revised, to $41.5 billion in September, marking a 5.1% decrease.

The service sector set a new single month record with $53 billion in exports, breaking the $52.8 billion set in August. Goods exports also set a monthly record, increasing by $5.4 billion to a high of $134 billion in September.

“Although more work remains, today's report shows that we're making historic progress toward achieving President Obama’s goal of doubling our exports by the end of 2014. Total U.S. exports hit a record high in September, as did export levels of both goods and services,” said Acting Commerce Secretary Rebecca Blank, referring to the newly-reelected President Obama's National Export Initiative. “Travel and tourism also continues to be a bright spot, with today’s data showing year-to-date exports 8% ahead of the same period last year. These kinds of increases mean more American jobs—1.2 million jobs were supported by exports between 2009 and 2011.”

Gains in goods exports were driven by increases in industrial supplies and materials ($3.4 billion), foods, feeds and beverages ($1.1 billion) and consumer goods ($0.5 billion). The increase in services exports was chalked up to bumps in travel ($0.2 billion) and other private services ($0.1 billion), which includes business, professional, technical, insurance and financial services.

- Jacob Barron, CICP, NACM staff writer

Election 2012: What Happens Now with the Economy?

After a campaign season that feels like it lasted for decades, the election is over and, essentially, nothing has changed: President Barack Obama won a second term and somewhat decisively; the House of Representatives is still firmly in the hands of the GOP: and the Senate is comfortably in the hands of the Democrats.

Does any of this really matter as far as the economy is concerned? In some respects, the election will have an impact but, in many ways, the vote only affects the big economic issues indirectly. For most of the last year, we have tirelessly tried to point out that presidents may get much of the blame or credit for what is happening in the economy, but their power is very limited. Congress is charged with decisions on taxing and spending.

The number one issue now is the impending fiscal cliff, and the latest election outcome could be either good news or very bad news. Congress now has a little less than two months to figure out what to do with the issue or they will essentially plunge the U.S. back into a recession that could last for a solid year. The betting is that they do something, but the details are very murky.

On the positive side, this is the Congress that will exists next year and that makes it far less of a lame duck than had been expected. If the Senate had gone to the GOP, there may have been a stronger temptation to stall and force the next Congress to deal with the mess. Now, the same people will be in charge next year as are in charge now and they have to find a solution or take the blame.

The negative side is that this is the same Congress that has been incapable of making a decision on this or any other debt/deficit issue, and there is possibility of more acrimony and hostility than before. Democrats are riding a high and may not feel the need to compromise. The GOP is feeling frustrated and may not be willing to back off either. The few moderates left in Congress have almost no power and influence as most of the new players are more ideologically motivated than the people they replaced.

-Armada Corporate Intelligence

Panama's Shine Continues to Build with Ratings Upgrade

Panama’s rise in prominence continues to catch the eyes of the business and investment worlds. The latest to take note, and take action, was Moody’s Investment Services.

NACM has noted previously Panama’s commitment to massively expanding its well-known and oft-used canal as well as its continued work to break down inter-governmental trade barriers has helped in positioning the small Latin American nation as increasingly prominent. Moody’s Investment Services listed the same among many reasons it raised the government’s credit rating Monday.

“Panama's economy has grown at an average rate of 7.3% during the past 10 years, the highest rate of growth in Latin America and among the highest in the world. Despite weakening external conditions, Panama continued to show remarkable economic dynamism in the first half of 2012,” Moody’s said. “Though recent growth rates are not sustainable, medium-term growth prospects remain strong thanks to the expansion of the Panama Canal, the Martinelli administration's ambitious infrastructure investment plans and the recent ratification of the free trade agreement by the U.S. Congress.”  Moody’s added that newfound commitment by Panamanian officials toward gold and copper mining also make the nation attractive from a credit and investment point of view.

This comes less than two months on the heels of the Commerce Department noting that, among major export markets, no nation has seen a larger rise in the purchase of U.S. goods in recent years. To wit, the 36.3% increase since 2009 (through September) bested the second faster riser (Turkey) by nearly 8 percentage points.

Key to watch in the coming months and years will be something else that has been already been on expert market-watchers’ radar: whether the government there can manage growth responsibly and avoid creating troubling fiscal imbalances for the medium- and long-term. It’s something that not-too-distant neighbor Brazil, despite its hot status of recent years, has once again seemed to fail in mastering.

-Brian Shappell, CBA, NACM staff writer

Credit Managers' Index for October Falls

The October Credit Managers’ Index, available now at, reflected the mood of the overall economy, one with some aspects point in a positive direction and others decidely the opposite.

The sense is that a few of the big issues that have been affecting other economic measures are having an impact on the CMI. While it is hard to point explicitly at the “fiscal cliff” as a cause for overall decline, it is quite apparent that the uncertainty affecting business decision-making is having an impact, as some of the future indicators are weaker than expected at this point.

The most distressing category in this month’s survey, and the one that seems to point to the fiscal cliff issue, would be sales. CMI statistics on sales show a decline to the lowest level since the middle of 2011. While disappointing and troublesome, sales remains in expansion terriorty, if nothing else.

"The silver lining in this case would be that a solution to the crisis would likely result in a jump in capital expenditures and investment in general, said Chris Kuehl, PhD, economist for the National Association of Credit Management (NACM) regarding the fiscal cliff issue. "The downside is that the powers that be could still allow the unthinkable to occur."

Meanwhile, favorable and unvavorable factors stayed on the encouraging side of the growth/contraction line. However, one particular category of importance showed a significant decrease. Dollar amount beyond terms sported the biggest decline among unfavorable factors. In the past, this has indicated that companies are starting to struggle to meet their obligations, and in the months to come some of the other negatives start to accelerate.

The complete CMI report for October 2012 contains the full commentary, complete with tables and graphs. CMI archives may also be viewed on NACM’s website.

-NACM Staff